Gold Bears Get the Upper Hand

The perceived safe-haven gold market has several factors working against it. Day-to-day price volatility in most markets has died down in recent months compared to levels seen during much of 2011. The world geopolitical front is less active at present, as the marketplace perceives no major events on the verge of disrupting markets. And the near-term technical posture of gold has soured the past several weeks.

Indeed, the gold market bulls tend to feed on higher trader/investor tensions in the marketplace, which produces higher daily price volatility. Nearby Comex gold futures in September 2011 scored a new all-time high of $1,923.70 at a time of very high anxiety regarding the European Union's sovereign debt crisis, political upheaval in the Middle East, and tensions over Iran's nuclear ambitions, and the U.S. economy still being on shaky ground.

Contrast the early autumn of 2011 to the present marketplace environment that has seen significantly improved general investor attitudes regarding the U.S. economy, the EU debt crisis, and the Middle East situation. Indeed, later this week Iran is set to meet with members of the United Nations Security Council to discuss a compromise regarding Iran's nuclear program and the West's determination to halt it.

From another fundamental perspective, the gold market has also suffered from recent notions in the marketplace that the Federal Reserve is less likely to initiate a fresh round of quantitative easing of monetary policy in the wake of better U.S. economic data the past several months. Gold had received a double-barrel bullish boost the past couple of years with the sputtering U.S. economy not only making investors more skittish and likely to look to gold as a safe-haven store of value, but also due to the quantitative easing depreciating the value of the U.S. dollar on the foreign exchange market. The gold market generally trades in an inverse price relationship to the value of the U.S. dollar against the other major currencies.

The U.S. stock indices being in solid and sustained price uptrends since last autumn is also a negative factor that is pulling investment funds away from the gold market.

From a charts perspective, the near-term technical posture of the gold market favors the bearish camp, as prices are in a five-week-old downtrend on the daily chart and last week hit a three-month low.

If the confluence of generally low market price volatility, decelerating tensions in the Middle East, improving sentiment coming out of the European Union, and continued better economic data coming out of the U.S. continues, then it's likely the gold market bears will continue to have the upper hand in the coming weeks and months. But staunch yellow-metal bulls must be sitting back and thinking to themselves, "What are the odds of all those situations remaining static?"